EMI relief for home loan buyers? What happens to loan rate if RBI may cut interest rates on Friday 

RBI MPC: The Monetary Policy Committee (MPC) of the Reserve Bank of India is expected to announce an interest rate cut on Friday. Economists have predicted a 25 basis point (bps) reduction, marking the first such decrease in five years. The MPC is currently discussing various key interest rates and measures to address domestic liquidity conditions and manage INR volatility. The MPC began its bi-monthly review of the economy on February 5, 2025, with the review set to conclude on Friday, February 7.

This meeting holds particular significance for Governor Sanjay Malhotra, who assumed office in mid-December. He is anticipated to adopt a more lenient approach compared to his predecessor, Shaktikanta Das, who maintained unchanged interest rates for a period of two years.

According to a survey conducted by Bloomberg, the majority of economists anticipate that the central bank will reduce the benchmark repurchase rate to 6.25 per cent by at least 25 basis points this Friday. Some analysts speculate that there is a possibility of Malhotra making a more substantial cut of 50 basis points.

Since February 2023, RBI has kept the policy repo rate steady at 6.50%. During the December 2024 bi-monthly monetary policy meeting, the six-member Monetary Policy Committee (MPC) of the RBI chose to maintain the repo rate for the 11th consecutive time. A majority of 4 out of 6 members voted in favor of retaining the policy repo rate unchanged due to the ongoing issue of high inflation.

Repo rate

The Repo rate, determined by the Reserve Bank of India (RBI), is the interest rate at which commercial banks obtain funds from the central bank. A decrease in the repo rate diminishes the borrowing expenses for banks, promoting investments in the nation. Conversely, an increase in the repo rate elevates borrowing costs, resulting in decreased investments.

In addition to impacting borrowing expenses, the RBI utilizes the repo rate to manage inflation. If the economy is growing too rapidly and inflation is rising, the central bank may raise the repo rate to curb spending. In contrast, during economic downturns, the central bank may lower the repo rate to boost spending.

What happens to your home loan

The RBI repo rate is a crucial factor in determining loan rates, including those for home loans. Prospective homebuyers relying on a home loan are eagerly anticipating the RBI’s upcoming rate revision, as it will directly impact interest rates on loans in India.

An increase in the repo rate by the RBI generally leads banks to raise their lending rates, resulting in higher interest rates on home loans, whether fixed or floating. Conversely, a decrease in the repo rate prompts banks to lower their lending rates, making home loans more affordable. This adjustment provides immediate benefits to individuals with floating interest rates or at the next reset period.

For homeowners or individuals paying Equated Monthly Installments (EMIs), a stable repo rate means that their loan interest rates will remain consistent for the time being. 

In these circumstances, individuals seeking loans can opt for floating-rate loans. If the RBI decides to cut the repo rate, loan EMIs may potentially reduce as well. Hence, it may be beneficial to consider refinancing existing home loans to leverage the potential decrease in EMIs.

Will home loan rates dip?

Starting in April 2019, banks are required to link their home loan interest rates to the EBLR. When it comes to availing of home loans, a considerable number of individuals choose either floating or variable interest rates due to their adaptability to changes in monetary policy.

One advantage of opting for floating interest rates is that when the RBI lowers the policy repo rate, banks and housing finance companies typically reduce the interest rates accordingly. This results in decreased Equated Monthly Installments (EMIs) or earlier loan repayment for borrowers.

This not only eases the financial burden on existing borrowers but also has the potential to stimulate demand from new home loan applicants, thus benefiting the real estate sector.

It is important to note that while EMIs are expected to reduce gradually following a repo rate cut, the timing of this adjustment may vary depending on the transmission mechanism implemented by the lender. Some lenders may implement rate changes promptly, while others may have a longer processing period.

As a borrower, it is important to stay informed about the RBI MPC bi-monthly policy meeting. This meeting will provide insight into the direction of interest rates, allowing you to take proactive steps to optimise your home loan. 
If repo rates are slashed, one can contact their lending institution to request an interest rate reset. For those with floating-rate home loans, it may be beneficial to negotiate for a lower interest rate or reset. A successful negotiation could result in more manageable monthly payments or an opportunity to pay off the loan sooner.